7/20/2009 @ 10:40PM

Weaknesses In Chinese Wind Power

Seeking to rein in its emissions of greenhouse gases, China is on an ambitious spending spree in wind power. The government is working on plans to shell out 1 trillion yuan ($146 billion) to build seven massive wind farms with a combined capacity of more than 120 gigawatts, roughly equal to the world’s total installed wind power plants last year.

The world’s largest producer of carbon emissions has been doubling its wind power capacity every year since 2006; it was the world’s second-largest buyer of wind turbines in 2008. Yet, about 30% of its wind power assets are not in use–much of that not even connected to the transmission grid–a result of Chinese power companies turning to wind as the cheapest, easiest way to satisfy on paper government requirements to boost renewable energy capacity. Whether the massive new building push will be any more efficient is an open question, given that much of it is slated for out of the way places, mainly in the north, making it uneconomical to build the lengthy extensions to China’s grid that would be required to transmit the power to distant population centers.

China has been actively developing wind energy over the past three years. The country added 6.3 gW of capacity in 2008, doubling its total wind power capacity to 12.2 gW, in the process becoming the world’s second-biggest wind turbine buyer behind the U.S. and the world’s fourth-biggest producer of wind power after the U.S., Germany and Spain, according to the annual report of the World Wind Energy Association.

In July, the government of the arid northwestern province of Gansu began construction of a wind power station in the former Silk Road outpost of Jiuquan, the first of seven 10-gW wind power bases planned by provincial authorities around the country. The other six have yet to receive the green light from the country’s top planning authority, the National Development and Reform Commission.

Citigroup estimates China’s wind power capacity could easily grow to 130 gW by 2020. “Yet, the most important question is whether wind energy in China is efficient,” said Pierre Lau, Head of Asia-Pacific Utilities Research with Citi.

So far, the answer has been “no.”

While the rapid growth in China’s wind power capacity looks impressive on paper, it is less so in reality. China’s total electricity production capacity reached 792.4 gW at the end of 2008; the 12 gW of wind capacity accounted for about 1.5% of that. However, in terms of actual power production, wind turbines generated 13 million megawatt-hours of electricity last year, only about 0.4% of China’s total energy supply, based on Citigroup data.

A considerable proportion of China’s wind plants are unproductive. According to Morgan Stanley research, about 3.5 gW of installed wind capacity in China may be lying idle, or 29%. Citigroup also estimated about 30% of wind power capacity in 2008 was not connected to the electrical grid.

China’s wind turbine installation boom kicked off in 2006 as a result of a law that required power companies with over 5 gW of production capacity to build enough non-hydro renewable power sources to make up at least 3% of their installed capacity by 2010, and at least 8% by 2020. However, the regulations do not stipulate how much energy must actually be generated from renewable power sources.

As wind power plants are 50% cheaper to install than solar and simpler to operate than biomass plants, China’s top five state-owned power groups–Guodian, Datang, Huaneng, Huadian and CPI Group–all became wind chasers, scrambling for the windiest sites such as Hebei province and northern Inner Mongolia.

To construct wind turbines in Inner Mongolia to capture the strong winds from the Mongolian and Siberian steppes seems logical at first glance. However, most of the wind farms in Inner Mongolia are erected in remote places too far away from the transmission network and thus uneconomical for the grid to extend the cables to collect the wind power, Pierre Lau of Citi said.

Sebastian Meyer, director of Beijing-based energy consultant Azure International, said that the fractured organizational and administrative structure of transmission and distribution also makes it difficult for grid connections to be made.

On paper, grid companies are responsible for building infrastructure to ensure grid connection of all renewable energy plants. In 2007, Chinese regulators instituted a system of tariff surcharges to compensate grid companies for the high costs incurred in purchasing non-hydro renewable power and to self-fund growing penetration of renewables within the energy mix. However, it hasn’t provided sufficient incentives.

The National Development and Reform Commission has had to step in a number of times already to force fund transfers among provincial level profit centers of the State Grid Company,” said Meyer. “Because of this, at the local county grid operator level, connecting to one or many wind projects is likely to create a working capital problem that is additionally likely to be felt by project developers.”

Quality of Chinese wind turbines is another issue. The capacity utilization of China’s installed turbines–a measure how much electricity a plant has produced for a period of time compared to the potential power it could if the plant operated at full capacity–has run at 23%, compared with over 30% in other countries. “As a result, there have been concerns about quality of turbines,” said Sunil Gupta, an analyst with Morgan Stanley in a research report.

When China first went big into wind energy three years ago, about 65% of the turbines it purchased were produced by international companies such as Denmark’s Vestas Wind Systems, U.S.-based GE Energy and Spain’s Gamesa. However, as a result of a recently tightened “Buy Chinese” policy to favor local manufacturers, about 75% of new wind turbines are now supplied by 70 low-cost local producers.

Chinese manufacturers have experience making small turbines, but megawatt-size units are new territory for them. “We believe quality concerns may be the biggest problem for domestic turbine manufacturers in the next few years,” UBS said in a research note earlier this year.